One of the most productive, but difficult, things an executive can do right now is lead with optimism. This is not an easy ask. As far as the economy is concerned, the tone heading into 2020 is decidedly more negative compared to this time last year. Nearly any economic measure, except perhaps the stock market, is in a worse place today than in December 2018. Compound that with the additional noise surrounding the US' upcoming general election, a hotly-simmering trade war between the world’s two largest economies, and an abundance of geopolitical uncertainty emanating from elsewhere around the world, and it is hard to feel jolly about much of anything this holiday season.
This is also year-end bonus season. Well, it usually is, anyway – maybe not this year. Most firms we consult here at ITR are on the back side of the business cycle, with business slowing at best or contracting year-over-year at worst. This is a stark contrast from the favorable economic environment of 2017 and 2018, when businesses that correlate positively with the US economy were blowing sales targets and goals out of the water. For those not watching the shifting economic winds, that might have led to overly optimistic expectations for 2019. Missing out on or perhaps receiving a smaller-than-expected year-end bonus may come as a surprise to your employees, particularly those younger workers who have not yet experienced a substantial macroeconomic downturn during their working years. This can dampen morale, make employees feel underappreciated, and even sow seeds of animosity toward the employer. During what should be a joyous holiday season, the negativity and anxiety can spill over from professional lives into personal lives. Clark Griswold in National Lampoon's Christmas Vacation comes to mind…
I say this of course understanding that a bonus is a bonus – not a fixed aspect of base compensation. Nevertheless, employees can come to expect them, for better or worse, after a few years of strong performance. The best thing a manager can do is be transparent about the challenges currently emanating from the external economic environment, and look optimistically to the next rising phase of the business cycle. This would not be a false, ungrounded optimism, but a rational optimism, based on empirical inputs sourced from the leading indicators. In a recent blog post, our CEO, Brian Beaulieu, detailed nine leading indicators that are in confirmed or tentative rising trends, calling for macroeconomic rise in the latter stages of 2020 and into 2021. With the tentative low that has now formed in our proprietary ITR Leading Indicator™ (one of our favorites), we can now add a tenth to that list. We just received the latest data point in early December.
Transparent messaging and a confident, rational plan will instill confidence and drive employees to follow management’s lead. They will maintain strong morale and attack the challenges ahead.
Connor Lokar
Economist